Business process

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 3, Slide 2
Chapter Objectives
Be able to:
 Explain what a business process is and how the business
perspective differs from a traditional functional perspective.
 Create process maps for a business process and use these to
understand and diagnose a process.
 Calculate and interpret some common measures of process
performance.
 Discuss the importance of benchmarking and distinguish
between competitive benchmarking and process
benchmarking.
 Describe the Six Sigma methodology, including the steps of the
DMAIC process.
 Use and interpret some common continuous improvement
tools.
 Explain what the Supply-Chain Operations Reference (SCOR)
model is and why it is important to businesses.

Chapter 3, Slide 3
Business Processes
• Business processes defined
• Mapping business processes
• Managing and improving business
processes
–Measuring process performance
• The SCOR Model

Chapter 3, Slide 4
Business Processes Defined
Logically related sets of tasks or
activities geared toward some business
outcome
 Primary
 Support
 Development
What is the distinction? Examples of each? Are
the dividing lines always clear?

Chapter 3, Slide 5
Versus the “functional”
Perspective
What are some of the challenges in managing such processes?
Developing new products/services (Chapter 6)
Evaluating suppliers (Chapter 10)
Developing sales & operations plans (Chapter 13)
Suppliers Purchasing Engineering Operations Finance Marketing Customers

Chapter 3, Slide 6
Mapping Business Processes
• Relationship maps
– What are they?
– What level of detail?
– When are they most valuable?
• Detailed process maps
• ‘Swim Lane’ process maps

Chapter 3, Slide 7
Example
Automotive OEM wanted to understand how the
company’s needs were communicated to
suppliers
 First-tier supplier responsible for entire cockpit
(all interior pieces)
 Second-tier suppliers provide “families” of parts
to first-tier supplier (e.g., plastic trim, gauges
and wiring, etc.)

Chapter 3, Slide 8
Findings
1) OEM provided first-tier supplier with
weekly demand forecast for next 10
weeks
2) First-tier supplier sent its ‘own’ demand
forecasts to 10 second-tier suppliers
3) Second-tier suppliers delivered the
requirements to first-tier supplier

Chapter 3, Slide 9
Relationship Map

Chapter 3, Slide 10
Detailed Process Map
Identifies the specific activities that make up
the process. Basic steps are:
1. Identify the entity that will serve as your focal point:
 Customer?
 Order?
 Item?
2. Identify clear boundaries, starting and ending points
3. Keep it simple
 Does this detail add any insight?
 Do we need to map every exception condition?

Chapter 3, Slide 11
Mapping Symbols
Typical, but others may be used as appropriate
Start or finishing point
Step or activity in the process
Decision point (typically requires a “yes” or “no”)
Input or output (typically data or materials)
Document created
Delay
Inspection
Move activity

Chapter 3, Slide 12
Example*
Process mapping at a San Diego
distribution center (DC)
*Textbook, pages 50-52.

Chapter 3, Slide 13
Facts of the Case I
Process
1) Dealer faxes order to DC. One out of 25 orders lost
because of paper jams.
2) Fax sits in “In Box” around 2 hours (up to 4) until internal
mail picks it up.
3) Internal mail takes about one hour (up to 1.5 hours) to
deliver to the picking area. One out of 100 faxes are
delivered to the wrong place.
4) Order sits in clerk’s in-box until it is processed (0 to 2
hours). Processing time takes 5 minutes.

Chapter 3, Slide 14
Facts of the Case II
5) If item is in stock, worker picks and packs order (average
= 20 minutes, but up to 45 minutes).
6) Inspector takes 2 minutes to check order. Still, one out of
200 orders are completed incorrectly.
7) Transport firm delivers order (1 to 3 hours).

Chapter 3, Slide 15
Let’s Map the Process
(No looking in chapter!)
 What is the focal point of the mapping
effort?
 What are the boundaries of the process
map?
 What detail is missing from this simple
example?

Chapter 3, Slide 16
One Possible Solution

Chapter 3, Slide 17
Improving Business Processes:
Guidelines
• Attack each delay
– What causes it?
– How long is it?
– How could we reduce its impact?
• Examine each decision point
– Is this a real decision or just a checking activity?
– If the latter, can we automate or eliminate it?
• Dematerialize documentation.
– Can we do it electronically?
– Eliminate multiple copies?
– Share a common database?

Chapter 3, Slide 18
More Guidelines
• Look for loops
– Why is this loop here?
– Would we need to loop if we didn’t have any failures
in quality, planning, etc?
• Process steps
– What is the value of this activity, relative to its cost?
– Is this a necessary activity (support or
developmental?), or something else?

Chapter 3, Slide 19
Taking It Further ...
• All activities add costs and time
• Not all value-added activities provide “net”
value
– “Underperformers”
• Not all support and developmental activities
are necessary
– Necessary versus “symptomatic”

Chapter 3, Slide 20
Symptomatic Activities ...
• Inspecting or reworking goods
• Expediting shipments or “fighting
fires”
• Overproducing, holding excessive
inventories
• Standard backorder process

Chapter 3, Slide 21
…and Typical Causes
• Poor quality
• “Flying blind,” poor planning
• Poor controls, training, etc.
• Excessive demand variability
• Mismatches between an organization’s
capabilities and market requirements

Chapter 3, Slide 22
Process Improvement
Value Cost Description Action
Net Value-
Added Activity
++ + Adds net value Find ways to
increase value and
lower costs further
Underperformer + ++ Potential value-
adding activity
Change to value-
adding activity or
eliminate
Necessary 0 + Necessary
business activity
Reduce cost of
performing activity
Symptomatic 0 ++ Activity caused
by poor business
practices
Eliminate practices
that cause the
activity

Chapter 3, Slide 23
Swim Lane Process Map*
* Adapted from map by John Grout, Campbell School of Business, Berry College, Mount Berry, Georgia

Chapter 3, Slide 24
Swim Lane Process Map
• Shows functional relationships versus time
• Can help in measuring loading on various
functional areas
• Illustrates cross-function communication
processes
• Other names: cross-functional flowchart,
Rummler-Brache diagram.
• Useful for mapping MIS support for
processes

Chapter 3, Slide 25
Process Measures
Productivity
Efficiency
Cycle Time
Benchmarking

Chapter 3, Slide 26
Productivity Measures
Productivity =
Outputs
Inputs
Single-factor, Multifactor, and Total measures of productivity

Chapter 3, Slide 27
Examples
Batteries Produced
Machine Hours + Direct Labor Hours
Total Nightly Sales ($)
Total Nightly Costs ($)
Batteries Produced
Direct Labor Hours
Single-factor
productivity ratio:
Multifactor:
Total multifactor:

Chapter 3, Slide 28
Consider the following data . . .
Quantity $/Unit
Car X 4000 cars $8,000/car
Car Y 6000 cars $9,500/car
Total labor for
building X
20,000 hours $12/hour
Total labor for
building Y
30,000 hours $14/hour

Chapter 3, Slide 29
What is the Labor Productivity
in hours for Each Car?
Car X: (4,000 cars / 20,000 hrs) = ?
Car Y: (6,000 cars / 30,000 hrs) = ?
How might these measures be affected by
capital substitution?

Chapter 3, Slide 30
What is the Labor Productivity
in dollars for Each Car?
Impact of wage, price changes?
Car X: (4,000 × $8,000) = ?
(20,000 × $12)
Car Y: (6,000 × $9,500) = ?
(30,000 × $14)

Chapter 3, Slide 31
Results
(What are the Benefits? Caveats?)
Car X: (4,000 × $8,000) = 133.33
(20,000 × $12)
Car X: (4,000 units / 20,000 hrs.) = 0.2 units / hr
Productivity (hours)
Productivity ($)
Values for Car Y?

Chapter 3, Slide 32
Efficiency
A comparison of a company’s actual
performance to some standard
Usually expressed as a percentage
Standard is an estimate of what should be produced
based on studies or historical results
Efficiency = 100%(actual rate / standard rate)
OR: Efficiency = 100%(standard time/actual time) for
one unit

Chapter 3, Slide 33
Cycle Time
Total time required to complete a
process from start to finish.
– The percent of cycle time spent on
value-added activities is a measure of
process effectiveness.

Chapter 3, Slide 34
Cycle Time Drivers
Causes that increase cycle time are:
Waiting times
Unneeded steps
Rework
Unnecessary controls or testing
Outmoded technology
Lack of information or training

Chapter 3, Slide 35
Benchmarking
A comparison of a company’s
performance to the performance of:
Other firms in its industry (strategic)
Firms identified as “world-class”
(process)

Chapter 3, Slide 36
Benchmarking Data from
“The Machine That Changed The World”
Number of assembly defects per 100 vehicles (1989):
Average Japanese plant: 34.0
Average US plant: 64.6
Average European plant: 76.8
Is this strategic or process benchmarking?

Chapter 3, Slide 37
More Benchmarking Data ...
Labor and machine hours per vehicle (1989):
Average Japanese plant: 16.9
Average US plant: 35.7
Average European plant: 57
What is the benefit of having both sets of figures?

So what’s happened since?
Some new productivity figures.

Chapter 3, Slide 39
From “The Harbour Report”,
July 1998
“Labor hours needed for stamping, power
train, and assembly operations”:
(100%) Nissan 27.6 hours
(168%) GM 46.5 hours (126%)
Ford 34.7 hours
"If GM could operate at Nissan's level of productivity, they'd
save themselves about $4.4 billion a year," Measured
another way, the report shows GM has about 55,000 more
workers than it needs.

Chapter 3, Slide 40
Other Measures I
Costs
Quality
• Materials
• Labor
• Shipping
• etc.
• Defects per million (ppm)
• Number of returns
• Time between failures (MTBF,
reliability)

Chapter 3, Slide 41
Other Measures II
Speed
Flexibility
• Lead time to customer
• Percent orders late
• Changeover time
• Volume to meet changes in
demand

Chapter 3, Slide 42
Measurement Key Points
• Can be situation-specific
• Should be relative to past performance and
future goals
• Potential for conflicts. Consider:
# of Students Taught
Professor hours
% of Satisfied
Students
versus

Chapter 3, Slide 43
Six Sigma Methodology
Core value is having less than 3.4 defects per
million opportunities (DPMO). Key elements are:
Understanding and managing customer
requirements
Aligning key business processes to achieve
those requirements
Using rigorous data analysis to understand and
ultimately minimize variation in those processes
Driving rapid and sustainable improvement to
business processes.

Chapter 3, Slide 44
Six Sigma Methodology
Two basic Six Sigma processes are:
DMAIC (Define-Measure-Analyze-
Improve-Control) — an updated version of
the PDCA process promoted by Deming.
DMADV (Define-Measure-Analyze-
Design-Verify)

Chapter 3, Slide 45
The PDCA Cycle
Plan
Do
Check
Act

Chapter 3, Slide 46
Common Improvement
Tools
 Cause and effect diagrams (aka “Fishbone”
or Ishikawa diagrams)
 Check sheets
 Pareto analysis
 Run charts and scatter plots
 Bar graphs
 Histograms

Chapter 3, Slide 47
A Services Example
Flight delays at Midway
• Cause and Effect Diagrams
• Check Sheets
• Pareto Analysis

Chapter 3, Slide 48
Problem: Delayed Flights
• No one is sure why, but plenty of opinions
• “Management by Fact”
• CI Tools we will use:
– Fishbone diagram
– Check sheets
– Pareto analysis

Chapter 3, Slide 49
Cause and Effect Diagram
ASKS: What are the possible causes?
Root cause analysis — open and narrow phases

Chapter 3, Slide 50
Generic C&E Diagram

Chapter 3, Slide 51
Midway C&E diagram

Chapter 3, Slide 52
Check Sheets
(root cause analysis -- closed phase)
Event: Day 1 Day 2 Day 3
Late arrival II II I
Gate occupied
Too few agents I I
Accepting late
passengers
II III II

Chapter 3, Slide 53
Pareto Analysis
(sorted histogram)
Late passengers
Late arrivals
Late baggage to aircraft
Weather
Other (160)
100
85
70
65

Chapter 3, Slide 54
Percent of each out of 480
total incidents ...
Late passengers 21%
Late arrivals 18%
Late baggage to aircraft 15%
Weather 14%
Other 33%

Chapter 3, Slide 55
Run Charts and Scatter
Plots
Time
Measure
Variable Y
Variable X
Run
Scatter

Chapter 3, Slide 56
Histograms
Frequency
Measurements

Chapter 3, Slide 57
Supply-Chain Operations
Reference (SCOR) Model
Five core processes for Level 1
• Source
• Make
• Deliver
• Return
• Plan
Three expanded processes for Level 2
• Planning
• Execution
• Enable

Chapter 3, Slide 58
SCOR
Model
www.supply-chain.org

Business Processes Case
Study
Zephtrex Fabric

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